Week that was...Market continued to hit new highs every week, Nifty touched 10,138 supported by better than expected earnings of index heavy weights, strong liquidity and on expectation of rate cut. RBI’s 25bps rate cut to 6% was in line; however there is nothing to cheer with rate cut as the policy was in consonance with their neutral stance whereas investor expected a change. Given RBI’s neutral stance, market witnessed profit-booking due to lofty valuation.Moderation in inflation and strong earnings outlook in the long term despite temporary hiccups on account of GST limited the downside. Surprise savings account interest rate cut decision by country’s largest PSU bank attracted investors to the banking stocks on expectation of improvement in margins. Additionally, good set of monthly auto sales numbers attracted investor’s interest. Oil & Gas sector outperformed the bench mark indices due to government continued focus on reform process for removing subsidies and merger of PSU oil companies. Further, inclusion of PSU OMCs in new PSU ETF (Bharat-22) launched by government to boost disinvestment also added positive sentiment to the sector. On the flip side, continued USFDA woes and weak results from pharma led the sector to underperform. Whereas, subdued results from tier-2 companies were impacted by the double whammy of Demo and GST added some negative sentiments in the market. Towards end of the week, positive cues from global markets and renewed buying on index heavyweights supported the market to recoup the interim weekly losses.

Week ahead...

The July PMI was disappointing, IIP has been very volatile and growth of 8 core industries is at low level while India’s GDP growth is off the track. While retail inflation is at record low which is much the RBI target of 4%. In-spite of this, RBI maintains a neutral stance which should be viewed with caution. We continue to have a cautious view in the near-term given premium valuation and strong price performance in the last 6-9months. It is time to be stock specific as the vulnerability to domestic market is high at premium valuation and global risk.